The evolving story of outsourcing

Like with many other trends outsourcing has a lot of supporters as well as many critics. But every trend has to be judged by its merits and outsourcing for outsourcing’s sake is only valued by investors with a very short term goals. Recently the talk of taking manufacturing back was mentioned in many headlines. Out of curiosity I went around the house to look at the labels. I found a lot of China, Thailand, India, Japan, Malaysia, but not the US.

While the push to outsource manufacturing brought a lot of good to consumers and helped with raising hopes in many developing countries, application of the same principles to the complex supply chains cannot be declared a gleaming success. I remember many articles praising Boeing’s innovative approach to the development 787 Dreamliner in which the company involved engineering teams and suppliers from all around the world to achieve the 20% cuts in the cost of development. The airline industry was clearly excited about the new plain and the expectations could not be higher.

The original idea of the new approach was to allow suppliers more autonomy by producing subassemblies that can be then shipped to the final assembly line at the company plant in Everett WA. The final assembly would have taken 25% of the time if would typically take for other models. This way suppliers and subcontractor were given much more important role in the whole process.

Pioneering any undertaking of this magnitude involves a lot of risks. But what the company did not realize is the kind of risk it was taking. With the outsourcing being so prevalent in many of the countries where Boeing’s contractors are located the war for talent is very hot. When first assemblies started to arrive, the company specialists were shocked to find huge amount of deviations, such as use of fasteners not suited for the industry. The Dreamliner was originally planned for the first flight in the summer of 2007. The actual date moved by two years which caused the company a lot of headache, millions of dollars lost on the first units that will not be used outside of testing and many problems with suppliers.

In a frank talk Mike Bair, former 787 boss said in November of 2007 that "Boeing authorized a team of parts suppliers to design and build major sections of the craft, which it planned to snap together at its Seattle-area factory. But outsourcing so much responsibility has turned out to be far more difficult than anticipated... Boeing overestimated the ability of suppliers to handle tasks that its own designers and engineers know how to do almost intuitively after decades of building jets. ... many of these handpicked suppliers, instead of using their own engineers to do the design work, farmed out this key task to even-smaller companies."

The recent acquisition by Boeing of Global Aeronautica, LLC, a South Carolina fuselage subassembly facility is a part of the company’ plan to get back full control. Let’s hope it means safe flights and great experience for all of us down the road.